Airlines, suppliers warn of hit from RTX engine snag (updated)

Kawasaki Heavy Industries

12/09/2023 14:50

(Updates RTX shares, adds Airbus shares in paragraph 17, detail
on engines in paragraph 6)
       Sept 12 (Reuters) - Several airlines and aerospace
suppliers warned of a hit from U.S. firm RTX's  RTX.N 
disclosure of a rare manufacturing flaw that could ground
hundreds of Airbus  AIR.PA  jets in the coming years.
    The latest problem relates to a rare powder metal defect
that could lead to the cracking of some engine components and
comes on top of a spate of durability issues that the engines
are facing.
    It adds to the troubles of the airline industry, which has
been grappling with shortages of staff and new planes, while
piling pressure on suppliers who were just beginning to see an
easing of supply chain woes.
    RTX, formerly known as Raytheon, said on Monday it will have
to pull 600 to 700 of its Pratt & Whitney Geared Turbofan (GTF)
engines from Airbus A320neo jets for quality inspections between
2023 and 2026.
    The latest snag, first revealed in July, could ground an
average of 350 jets a year through 2026, with as many as 650
jets sitting idle in the first half of 2024. 
    Repair work that RTX CEO Greg Hayes had initially expected
would take 60 days is now expected to last up to 300 days per
engine. 
    The problem may worsen a tug-of-war over engines between
airplane factories and repair shops, industry sources have told
Reuters.
    Air New Zealand  AIR.NZ , which has 16 A320neo jets in its
fleet, said on Tuesday the issue will further reduce engine
availability and would have a "significant" impact on its flight
schedule from January 2024.
    Scoot, a unit of Singapore Airlines  SIAL.SI , said the
inspections would affect four of the engines that power its
A320neo fleet and could force it to adjust some of its flights.
    On Monday, Hungarian carrier Wizz Air  WIZZ.L  estimated a
potential 10% capacity hit in the second half of fiscal 2024.
    Aerospace suppliers who have a stake in the troubled engine
program also outlined their share of costs.
    London-listed Melrose Industries  MRON.L  said it faces a
potential cash impact of around 200 million pounds ($249.20
million).
    Japan's IHI  7013.T  and Kawasaki Heavy Industries  7012.T  
said they expect an earnings hit from the lengthy quality
inspections, following a profit warning from German firm MTU
Aero Engines  MTXGn.DE  on Monday.
    Meanwhile, at least four Wall Street analysts cut their
price targets on RTX, with some voicing concern about the scope
of the problem.
    "When the company initially identified the powder metal
issue with the GTF engine, we had confidence that the issue,
based on the data provided, was relatively well contained," RBC
Capital Markets analyst Ken Herbert wrote in a note.
    "However, the financial and operational impact identified
(on Monday) is more substantial than we had expected." 
    RTX shares were down 3.2%, hitting over a two year low of
$74.26 on Tuesday. Airbus shares were down 2.3%.

($1 = 0.8026 pounds)

 (Reporting by Rajesh Kumar Singh in New Delhi, Abhijith
Ganapavaram and Aniruddha Ghosh in Bengaluru; Editing by Arun
Koyyur)
 ((Abhijith.G@thomsonreuters.com | Twitter: https://twitter.com/abhijithg4;
 +91-9019785574;))